Trade Receivables Accounts
We will learn to identify and interpret transactions that are recorded in the trade receivables account, how to prepare the account and to apply trade and cash discounts correctly.
Related Lessons:
Trade Receivables
Trade receivables are customers who bought goods or services from the business on credit.
As payment from these customers are to be received at a later date, trade receivables are current asset of the business.
When accounting for sales to credit customers and payments received from them, we must calculate and apply the correct trade discount and cash discount as follows:
Trade discount:
Sales revenue and sales return are recorded at net amount, which is list price minus trade discount.
Cash discount:
When a cash discount is given, the amount receivable is the amount owed by the trade receivable less the cash discount. The cash discount given is recorded as discount allowed.
Refer to the lesson on trade and cash discount for a deeper understanding of how to calculate and account for them.
Preparing the Trade Receivables Account
The following transactions are recorded in the trade receivables account:
- Credit Sales as Sales revenue
- Undercharging as Sales revenue
- Return of goods as Sales return
- Payment received as Cash at bank
- Discount given as Discount allowed
- Returned cheque as Cash at bank
- Discount withdrawn as Discount allowed
- Late payment fees as Interest income
- Writing off uncollectible debts as Allowance for impairment of trade receivables